Wilmington Trust Corp. (WL), in order to comply with government bailout rules, recently rescinded more than $1.8 million in compensation from Chief Executive Donald Foley, possibly the first time a top bank official has had to return money for this reason.

Wilmington Trust--which in November agreed to be bought by M&T Bank Corp. (MTB) at a price below book value--received $330 million in government bailout funds and was subject to pay restrictions under the Treasury Department's Troubled Asset Relief Program.

Specifically, because the Delaware bank received more than $250 million in TARP funds, bonus rules were applicable to the top five senior officers as well as the next 10 highly compensated employees.

In an emailed statement, a company spokesman said "Mr. Foley and the Board determined that it was necessary to adjust elements of his compensation in order to be in full compliance with regulations covering compensation at institutions that have received TARP funds."

A Treasury Department spokesman declined to comment on Wilmington Trust specifically, but said, "Treasury requires that all TARP institutions follow the relevant rules on executive pay and that management certify their compliance on an annual basis."

The rescinded pay included a $1.75 million signing bonus in cash and restricted stock. Foley also agreed to reduce the number of shares of restricted stock granted to him in 2010 to 23,463 from 40,026, valued at more than $248,000 when they were granted to him when he was named CEO in June.

Wilmington Trust, known for its focus on wealthy clients, disclosed the move in a regulatory filing on Dec. 23. In the filing, Wilmington Trust also raised Foley's base salary to $1.5 million per year from $1.2 million.

Gerard Cassidy, an analyst with RBC Capital Markets, said the revoked pay is, to his knowledge, the first instance "where a bank had to return compensation because of the problems they had," adding that it may be an indication that the company didn't realize how deeply its loan book was in trouble.

On Nov. 1, Wilmington Trust agreed to be acquired by M&T for $3.84 a share, which at the time, was a 46% discount to the bank's closing price a few days earlier. That deal was announced the same day Wilmington Trust posted a $365.3 million third-quarter loss, driven by increasing losses from bad construction loans.

Wilmington Trust shares, down 64% over the past year, closed down 2.2% to $4.38 on Tuesday.

News of Wilmington's adjustment of Foley's compensation was reported earlier Tuesday by Bloomberg News.

-By Brett Philbin, Dow Jones Newswires; 212-416-2173; brett.philbin@dowjones.com
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